Learn how to manage project costs in this chapter from PMP Training Kit, with a focus on the processes of developing a cost management plan, the processes of estimating costs for activities and the overall project, preparing your project budget or cost baseline, recording performance, and influencing and assessing any changes to the project budget.

This chapter focuses on project cost management. Project cost management, like the other knowledge areas, begins with a process of planning that produces a cost management plan. Then there is an iterative process that produces and updates the cost estimates and cost baseline. After these have been developed, a monitoring and controlling process is used to measure actual versus planned cost performance and to manage any change requests.

You may need to pay particular attention in this chapter to those activities of calculating earned value management; there is quite a bit of technical information that you will need to learn.

The PMBOK® Guide processes

Project Cost Management knowledge area

The four processes in the Project Cost Management knowledge area are:

Plan Cost Management (Planning process)

Estimate Costs (Planning process)

Determine Budget (Planning process)

Control Costs (Monitoring and Controlling process)

Domain tasks in this chapter:

Plan Cost Management, Estimate Costs, and Determine Budget processes:

2.3 Develop a budget plan based on the project scope using estimating techniques, in order to manage project cost.

Control Costs process:

4.1 Measure project performance using appropriate tools and techniques, in order to identify and quantify any variances, perform approved corrective actions, and communicate with relevant stakeholders.

4.2 Manage changes to the project scope, schedule, and costs by updating the project plan and communicating approved changes to the team, in order to ensure that revised project goals are met.

What is project cost management?

Project cost management is focused upon the processes of developing a cost management plan, the processes of estimating costs for activities and the overall project, preparing your project budget or cost baseline, recording performance, and influencing and assessing any changes to the project budget.

EXAM TIP

Although presented as discrete processes, the two processes of estimating costs and determining budget are usually done concurrently.

The processes contained in this knowledge area present a logical and sequential flow of information from estimating the costs through to controlling changes to your project budget. Figure 5-1 shows the general flow through this linear process without the general initial Plan Cost Management process.

Figure 5-1 This flow shows the process of developing project costs, then a project budget, and then monitoring the budget.

Real world

I have always found that the development of the project cost estimates and the approved cost budget is one of the most iterative parts of project management. You start out with high-level estimates based on incomplete information and constantly revise and refine both the information you have and the estimates that are based on the information. When you check how progress is going, you may need to revisit your estimates and revise individual costs estimates. It is because of this iterative nature and the high expectations that stakeholders have upon project costs that I pay extra attention to the cost management processes.